The Executive Board of the International Monetary Fund (IMF) has completed the fifth and last review of the Azerbaijan Republic's performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement. In doing so, the Board approved a request for waivers of performance criteria on net international reserves, the non-accumulation of external payment arrears, the approval of revenue and expenditure plans and the adoption of a plan to improve the annual budget process. While completion of the fifth review enables the release of the equivalent of SDR 12.87 million (about US$ 18.8 million), the Azeri authorities have already stated that they will not draw the final tranche available under the arrangement.

The Executive Board approved the three-year arrangement on July 6, 2001 (see News Brief No. 01/53) for an amount equivalent to SDR 80.45 million (about US$117.7 million), which was subsequently reduced to SDR 67.58 million on December 22, 2004 (see Press Release No. 04/276). Disbursements under the arrangement amount to SDR 54.71 million (about US$80 million).

"Buoyed by strong domestic demand, Azerbaijan's economy has continued to grow at double-digit rates since 2003. Growth has been broad-based and poverty has declined. The short-term growth outlook is favorable. However, inflation has accelerated to double-digit rates, in part reflecting an expansionary policy mix; and there have been some delays in the implementation of structural reforms. Against this background, the authorities have taken important measures to bring down inflation in the last few months, and are committed to continue with their disinflation policy and structural reform agenda after the PRGF arrangement ends on July 4, 2005.

"On the monetary and exchange rate front, the Azerbaijan National Bank has allowed the manat to appreciate and has increased interest rates. It will continue with its policy of exchange rate appreciation and interest rates increases to ensure a steady decline in inflation by year-end. In addition, the authorities have decided to increase exchange rate flexibility over the medium term, and have started to implement supporting structural reforms.

"Fiscal policy will support the authorities' disinflation efforts. Although fiscal policy in 2005 will be relatively expansionary, the authorities have decided to reduce the targeted fiscal deficit. Moreover, the authorities have taken steps to improve monitoring of budget execution by state-owned enterprises and to ensure timely payment of taxes by the State Oil Company of the Republic of Azerbaijan.

"The authorities intend to continue to implement structural reforms that are critical for diversifying the economy, maintaining Azerbaijan's competitiveness, and achieving macroeconomic stability. Of particular importance will be fiscal and financial sector reforms, further improvements to corporate governance and taxation of state-owned enterprises, and efforts to further improve the business climate and governance," Mr. Carstens said.

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper, or PRSP. This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies, to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.